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A proposed bill to establish a nationwide cap on fees and interest on credit cards and consumer loans would have a devastating effect on access to credit for individuals and small-business owners, the American Bankers Association, Independent Community Bankers of America and six other financial sector associations said in a letter on Monday.
The Protecting Consumers from Unreasonable Credit Rates Act (S. 2781) would impose a national “fee and interest rate” cap of 36%. The legislation is sponsored by Sens. Dick Durbin (D-Ill.), Sheldon Whitehouse (D-R.I.), and Richard Blumenthal (D-Conn.). In a letter to the sponsors, the associations pointed to studies showing that even modest government price controls raise costs rather than lower them.
A 36% rate cap on consumer loans will mean depository institutions will be unable to recover costs that enable them to sustainably offer affordable small-dollar loan products, they said. The same cap on credit card fees will result in tightened underwriting practices, lower credit lines and reduced cardholder rewards.